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Fiscal Federalism and Decentralization: Case of Pakistan

Fiscal Federalism and Decentralization: Case of Pakistan. By Dr. Aisha Ghaus Pasha Director Institute of Public Policy Beaconhouse National University, Lahore. History of Intergovernmental Transfers. Since Partition, eight revenue sharing awards Raisman Award of 1951

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Fiscal Federalism and Decentralization: Case of Pakistan

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  1. Fiscal Federalism and Decentralization:Case of Pakistan ByDr. Aisha Ghaus Pasha Director Institute of Public Policy Beaconhouse National University, Lahore

  2. History of Intergovernmental Transfers • Since Partition, eight revenue sharing awards • Raisman Award of 1951 • National Finance Commission Awards of 1961-62,1964,1970,1974,1990 and 1996 • Transfer Takes Three forms-”Divisible Pool” transfers, Straight Transfers and grants/subventions

  3. Implications of the NFC Award, 2009in 2010-11 Budget • Federal Government has to transfer more revenues to the provinces which leaves net revenue receipts at last year’s level • To curtail the deficit, federal current and development expenditure have also been restricted to last year’s level • Federal fiscal deficit target of 5% of GDP • Rapid expansion in combined provincial budgets in 2010-11 with increase of 20% in current expenditure and 50% in development expenditure • Provincial development activity now 53% of national public sector development program. • Consolidated deficit could rise to 5-6% of GDP as compared to target of 4% of GDP

  4. Medium term Consequences For the medium term consequences to be favorable, following conditions need to be fulfilled: • Provincial governments do not slacken own fiscal effort • Provincial governments avoid profligacy in expenditure • Proper planning and management of spending to maximize impact on the level and quality of service provision • Prioritize spending on backward regions and social services

  5. Implications for the Federal Government • Sharper Prioritization of Federal PSDP • Transfer of Vertical Programs in transferred Concurrent List Functions to Provinces • Enhance Tax-to-GDP ratio (e.g. by comprehensive VAT ) • Effective functioning of NFC secretariat

  6. Overall Conclusion The 7th NFC Award of 2009 will usher in a new era of fiscal federalism in Pakistan and improve prospects of higher investment on the people, but could contribute to increasing the underlying fiscal deficit and thereby exacerbate macroeconomic imbalances.

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